OPTIONS ANALYSIS OF SOFTWARE PLATFORM DECISIONS: A CASE STUDY.

Author List: Taudes, Alfred; Feurstein, Markus; Mild, Andreas;
MIS Quarterly, 2000, Volume 24, Issue 2, Page 227-243.
In recent years, the use of option pricing models to support IT investment decisions has been proposed in the MIS literature. In this paper, we discuss the practical advantages of such techniques for the selection of a software platform. First, we argue that traditional quantitative approaches to a cost-benefit analysis give only a partial picture of such decision situations: due to the long planning horizon required because of the time-consuming and resource-intensive implementation process, it is not possible to exactly predict which applications will, in fact, run on the system over time. Thus, the investor is faced with the problem of valuing 'implementation opportunities.' We then compare different valuation techniques for this task and discuss their respective advantages and drawbacks. The practical advantages of employing such models are demonstrated by describing a real-life case study where option pricing models were used for deciding whether to continue employing SAP R/2 or to switch to SAP R/3.
Keywords: Software platform; strategic IS management; real options; cost-benefit analysis; SAP R/3; IS investment
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List of Topics

#267 0.151 options real investment option investments model valuation technology value analysis uncertainty portfolio models using context intuitive managerial regret uncertain case
#43 0.095 architecture scheme soa distributed architectures layer discuss central difference coupled service-oriented advantages standard loosely table services classification layered included update
#78 0.093 planning strategic process management plan operational implementation critical used tactical effectiveness number identified activities years effective developed issues empirical plans
#8 0.078 decision making decisions decision-making makers use quality improve performance managers process better results time managerial task significantly help indicate maker
#44 0.074 approach analysis application approaches new used paper methodology simulation traditional techniques systems process based using proposed method present provides various
#195 0.072 pricing services levels level on-demand different demand capacity discrimination mechanism schemes conditions traffic paper resource expected based constraints solution latency
#261 0.063 software development maintenance case productivity application tools systems function tool engineering projects effort code developed applications analysis estimation methodology methods
#139 0.055 project projects failure software commitment escalation cost factors study problem resources continue prior escalate overruns taken failing troubled sunk fail
#98 0.054 platform platforms dynamics ecosystem greater generation open ecosystems evolution two-sided technologies investigate generations migration services implications interplay disruptive control markets